Donaldson Brown (1885-1965): The Power of an Individual and His Ideas over Time

Flesher, Dale L., Previts, Gary John, Accounting Historians Journal

ABSTRACT: Donaldson Brown developed the expanded Return on Investment (ROI) measure, or DuPont formula, in 1914. However ROI was not Brown's only contribution to financial management. His dealer ten-day reporting system was widely and rapidly adopted throughout the auto industry. His ideas to support a variety of forecasting and planning techniques supported decentralized corporate management and his pricing processes were cutting-edge developments that others tried to emulate. Flexible budgeting at General Motors, frequently unrecognized, also was in place during his financial administration in the early 1920s.

ROI remains Brown's most prominent contribution and the technique achieved status as a dominant approach to financial management in industrial corporations by the 1950s. As a national standard-of-performance measure, it was supported by varying sources including the American Management Association as well as in the teaching materials of academics, especially Robert N. Anthony of the Harvard Business School. The impact of these forms of dissemination led to ROI being adopted eventually at the Ford Motor Company when its previously autocratic centralized style of Ford family management was replaced by a team known as the Whiz Kids, led by Harvard Business School alumnus Robert McNamara and a former GM vice president, Ernest Breech. This paper asserts the significance of the innovations developed by Brown as being among the most important of those initiated in 20th century corporate America, and thus among the most important in the development of 20th century accounting and financial management thought.

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A January 1996 article in Scientific American noted the hearty timelessness of Donaldson Brown's then 82-year-old return-on-investment (ROI) measure, also known as the DuPont formula ["How Much Bang for the Buck?," 1996]. While it is rare for any financial publication, professional or academic, to associate a financial management innovation so directly with a single individual, it is even more notable when such a respected science publication does so. Today, as well, if one performs an ad hoc 'Google' search under the name Donaldson Brown (in combination with DuPont/GM/General Motors) it yields over one million hits, affirming a broad awareness of Brown's pioneering, and if not legendary, role in industrial financial management. Although it was at DuPont that Brown developed many of his concepts, it was at General Motors Corporation (GM) where he was able to put them to work. Brown's title was officially that of chief financial officer, but he was also essentially what is known today as the chief information officer at both companies--a role that effectively supported GM'S decentralization. This paper explores the many contributions of Donaldson Brown to the practice of accounting within corporate financial management.

While the contemporary acknowledgement of ROI seems widespread and established, there are circumstances that warrant revisiting Donaldson Brown today. First, accounting history has not provided a seminal study of Brown's work to complement the 1996 Scientific American recognition, which arguably reflected momentum from earlier studies such as those by Chandler and Salsbury [1971], Johnson [1978], Johnson and Kaplan [1987] and Johnson [1991]. Second, contemporary reinterpretation should be stimulated by the new and thoughtful works by business historians such as Freeland [1996; 2001] and Levenstein [1998] as well as added works that provide background about previous research, such as McDonald's [2002] memoir of his ghost writing assignment for Alfred Sloan's My Years with General Motors [1964]. This latter volume clearly, albeit indirectly, established that the management of General Motors was highly sensitive to both in fact and in appearance activities that might abet the Federal Government's interests in curbing the largest corporation in the world. Thus all the more reason that systems of governance and control, the legacies of Brown and his colleagues, are today viewed as important in a world where corporate governance has become a watchword. …

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